A ‘spectre of uncertainty’ hangs over UK economy

The Chancellor used his Spring Statement to urge MPs to back a Brexit agreement after the budget watchdog slashed this year’s growth forecast.

The Office for Budget Responsibility predicted economic growth of 1.2% this year - a downgrade from the 1.6% forecast at the Budget in October 2018.

Delivering his statement after MPs emphatically rejected Theresa May’s Brexit deal for a second time on Tuesday night, the Chancellor said the issue was “damaging our standing and reputation in the world”.

He warned: “Leaving with no deal would mean significant disruption in the short and medium-term and a smaller, less prosperous economy in the long-term, than if we leave with a deal.

“Higher unemployment; lower wages; higher prices in the shops. That is not what the British people voted for in June 2016.”

But Mr Hammond warned that economic progress would be put at risk unless MPs took the threat of an imminent no-deal Brexit off the table in the vote on Wednesday evening.

In an impassioned statement he said: “Our economy is fundamentally robust. But the uncertainty that I hoped we would lift last night, still hangs over us.

“We cannot allow that to continue. It is damaging our economy and it is damaging our standing and reputation in the world.”

Mr Hammond, viewed as one of the Cabinet ministers in favour of a softer Brexit deal, said rejecting an immediate no-deal Brexit and extending Article 50 could help find a “deal we can collectively support”.

The OBR forecast growth of 1.2% this year, 1.4% next year and 1.6% in the following three years.

Despite this year’s downgrade Mr Hammond said: “Cumulative growth over the five years is now slightly higher than the Budget forecast.”

The Chancellor said there was “good news” on the public finances, with borrowing forecast to reach £13.5 billion in 2023/24, its lowest level in 22 years.

Debt is forecast to be lower in every year than predicted at the Budget, falling to 82.2% of GDP next year, then 79%, 74.9% and 74% in the following years and 73% in 2023/24.

OBR figures handed Mr Hammond a £11bn windfall, in what Treasury sources described as an “extraordinary” indication of how well the economy is performing.

Better-than-expected income tax and national insurance revenues, resulting from wages outstripping inflation, mean the Chancellor is on track to meet his targets with a “headroom” of £26.6bn to spare, rather than the £15.4bn forecast at the time of the autumn Budget.

Mr Hammond said this cash could go towards Government priorities like public services, capital investment, low taxes and debt reduction, unless it was soaked up responding to a no-deal Brexit.

The Chancellor said he will decide in the Spending Review - which will be launched before the Commons summer recess and concluded alongside the autumn budget - how to share the proceeds from any Brexit “deal dividend”.